Pitfalls of real estate investment

For many, real estate investments are considered to be a safe investment against inflation. It is therefore no wonder that many investors want to build up or expand their assets or retirement provisions with apartment buildings, office complexes and other asset classes in the real estate sector. It is important to proceed strategically and with good consideration.

This includes, for example, analyzing the micro-macro location or exit strategies in case an investment develops differently than expected. Investors who do not want to make use of their exit strategy from the very first real estate investment should pay attention to a few things.

Achieving rental yields – planning for risks as a landlord

To achieve a positive return on rental income, problems with rent payments and unpleasant tenants should be avoided. These can reduce the return that can be achieved. Difficulties and costs that a landlord may encounter in everyday life include:

• demanded or legally enforced rent reductions
• Tenants who pay late or not at all
• renovation and redecoration costs when tenants move out
• Rental losses due to vacancies

To avoid losses in the return on investment, the rental property and the location must be carefully examined in advance. If investors decide to purchase the property, they should choose an experienced and competent property management company that ensures that only solvent and responsible tenants move in. When planning and analyzing the investment, investors can turn to a qualified and experienced investment broker in the region. Together, they can also look for a suitable property management company if one is not already in place.

Real estate investments are not short-term capital investments

It takes some time before the first financial successes of the investment can be felt. The implementation of value-enhancing measures to achieve or increase the return targets is time-consuming and costly. And even when the complex construction project is completed, the value of the property only grows slowly.

There is, however, another factor that influences the development of returns. Investors who decide against property management and want to take on the search for suitable tenants or the property management themselves should plan for the time needed for complex and time-consuming administrative tasks.

Insufficient reserves

When planning the financing of an investment, the costs of improvement and maintenance should not be forgotten. Anyone who later discovers defects and damage in the investment property they have purchased will face additional financial challenges. If these costs cannot be met with the previous rental income and the borrowed money from the financing partner, it will be expensive. After all, a backlog of renovation work causes high costs that can have a long-term impact on the value of the property and the return.

Costs that owners should also not forget

When buying a property, there are other costs to consider in addition to the purchase price. These include incidental costs and ongoing operating costs. Money may also have to be invested in renovation and modernization. All of these expenses reduce the return.

The following are some of the costs associated with buying a property

• · Costs for the estate agent
• · Notary fees
• · Fees for registration in the land register
• · Property transfer tax
• Operating costs include, among other things:
• Heating and water costs
• electricity
• Waste disposal
• costs for maintenance, electricity, operating lifts
• Cleaning of the building
• Insurance
• Chimney cleaning
• Cleaning the street
• Garden maintenance
• costs for communal facilities
• Property tax and other public charges

Depreciation due to changes in the micro-macro situation

As the owner of a property, you are often exposed to a so-called cluster risk. After all, unlike with share investments, you often only invest your money in one property when you buy it. If the property loses value due to changes in the surrounding area, it can become a bad investment. For example, if the nearby road becomes a bypass. In general, investors should always keep an eye on the value development and the regional market situation in order to be able to decide in advance whether the property is still profitable as an investment.

Caution with condominiums as an investment

Those who invest in a condominium can only determine changes to the property to a limited extent. After all, by purchasing the property, the investor becomes part of the owners’ association. Decisions regarding repairs or modernization cannot be made alone, as long as they affect the area outside ofd the apartment. If a roof needs to be replaced or if investors want to implement other value-adding measures, such projects can fail due to the resistance of other members of the owners’ association.

To avoid losing money on your first investment property, it is advisable to consult a regional investment broker. Together, you can look at and analyze which property in which region is best suited. The competent quality broker can also support investors later on when selling the property.

Are you looking for an investment property in Regensburg? Or would you like to sell an existing property from your portfolio? Then contact us. We are your partner for investment properties in the Regensburg region.

Note: For the sake of readability, the generic masculine is used in this text. Female and other gender identities are explicitly included, as far as it is necessary for the statement.

Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific case.